Services stall as recovery fears weigh

HOPES of a strong recovery in the services sector were dashed yesterday after leading surveys suggested that April’s slowdown was not just a blip as a result of the volcanic ash cloud.

The UK services purchasing managers’ index (PMI) only edged up to 55.4 in May from 55.3 a month earlier, while the US non-manufacturing ISM held steady at 55.4. In the beleaguered Eurozone, strong activity in France saw the PMI?increase to 56.2 from 55.6.

In Britain, Markit said there were reports that the general election outcome and worries over the strength of the economic recovery had resulted in a degree of client uncertainty and the deferral of spending.

Although analysts still expect the UK economy to grow faster in the second quarter than in the first, there are concerns that the recovery in the biggest part of the economy is struggling to pick up pace.

In the US, analysts pointed out that the non-manufacturing survey had been underperforming because manufacturing firms are more sensitive to exports, which are rebounding, and are less sensitive to bank credit conditions, which are not.

Across the Channel, France led the accelerated growth in the Eurozone’s services sector. Service sector expansion reached a 44-month high in France and growth picked up modestly in both Spain and Ireland. But the rate of expansion slowed in Germany and Italy. Employment rose for the first time since June 2008.